COMMODITIES-Oil, metals on defensive; Fed puts investors on edge

Fri Feb 22, 2013 3:36am IST

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* Markets down again, Fed may slow stimulus
    * Brent oil hits 3-week low, copper sinks to 2013 low
    * Gold firms from 7-month low but seen vulnerable


    By Barani Krishnan and Veronica Brown
    NEW YORK/LONDON, Feb 21 (Reuters) - Oil fell to a three-week
low on Thursday and copper hit a 2013 bottom as demand for
commodities weakened and worries grew that the U.S. central bank
might scale back its program of adding liquidity to the
financial markets.
    Spot gold recovered from the seven-month lows of the
previous day on technical buying, although some traders said it
could be vulnerable to further losses. The world's largest
gold-backed exchange-traded fund said it experienced its largest
one-day outflow in 18 months in Wednesday's selloff.
   
    Grain prices also eased, with wheat hitting an
eight-month low after heavy snow in the U.S. Plains should
provide needed moisture for the hard red winter wheat, which is
used to make bread. 
    The Thomson Reuters-Jefferies CRB index, a global
commodities benchmark, fell 1.2 percent for its sharpest one-day
slide since early November. Fourteen of the 19 markets tracked
by the CRB fell, with wheat, crude oil and nickel prices down at
least 2 percent each.
    Most commodities had also tumbled on Wednesday after rumors
that a hedge fund was liquidating positions pushed prices below
key support levels. 
    
    FED'S NEW COURSE PLAYS DEEPER INTO MARKETS
    The U.S. Federal Reserve added to the selling pressure in
gold when minutes of its January policy meeting - published on
Wednesday afternoon - suggested that it might slow or stop its
asset buying program before a pickup in U.S. employment becomes
evident. 
    The Fed's rethink of its bond-buying program played a
broader role in market sentiment on Thursday as a ream of weak
U.S. data fueled skepticism about the bullish bets that some
investors had placed on the economy since the start of the year.
    The number of Americans filing new claims for unemployment
benefits rose last week and consumer prices were flat in
January, according to the data, which also pulled U.S. stock
indexes lower. 
    
    LOOKOUT FOR VULNERABLE COMMODITY FUNDS
    Analysts braced for more bad news about commodity funds that
have been long the market if bearish data persists.
    At one point in Wednesday's sell-off, U.S. crude fell 0.7
percent in just about a minute as talk heightened of a
commodities hedge fund in trouble. Prices eventually finished
the session about 2 percent lower.
    "Yesterday's action was most likely not the result of a fund
imploding ... but that is not to say there are not funds
vulnerable out there," said Stephen Schork, who writes the
energy markets commentary The Schork Report.
    Since mid-December, hedge funds and other large speculators
had nearly doubled their bets that oil prices would rise,
amassing positions in Brent and U.S. crude oil futures and
options that were equivalent to around 440 million barrels of
oil, regulatory and exchange data showed. 
    
    U.S. CRUDE OIL SUPPLY AT JULY HIGHS
    In Thursday's session, London's benchmark Brent crude
 closed down 1.8 percent at $113.53 a barrel. U.S. crude
 settled down 2.5 percent at $92.84.
    It was a clear retreat from the oil rally that began early
this year and extended through Feb 8. In those six weeks, Brent
rose by $10 to hit a nine-month high above $119 on Feb. 8 as
signs of strong demand from China and lower Saudi supply raised
expectations of a tighter market.
    "We've come off a long way, and just looking at the charts,
Brent could come down to the $113 area," said Tony Machacek, a
broker at Jefferies Bache in London.
    In a potentially worrying sign to oil traders, the Energy
Information Administration said that U.S. inventories of
commercial crude oil hit their highest level since July 2012
last week. 
    
    COPPER AT 2-MONTH LOW
    Copper slid to its weakest level in two months on a lack of
metals demand in top consumer China and on news that the country
was placing curbs on its influential property sector.
    China - which accounts for 40 percent of copper demand - on
Wednesday restated its intention to extend a pilot property tax
program to more cities in the latest effort to calm frothy real
estate markets.
    "Clearly the Chinese real estate market is very, very
important both in terms of its confidence effects and the impact
it has on the overall construction industry," said Nic Brown,
head of commodities research at Natixis in London.
    Copper is a key raw material used in building construction.
    Three-month copper on the London Metal Exchange 
finished down 1.3 percent at $7,860 a tonne, adding to
Wednesday's 1 percent loss. Losses over the last two days have
also pushed copper into negative territory for the year.
    
 Prices at 4:41 p.m. EST (2141 GMT)      
                             LAST/      NET    PCT     YTD
                             CLOSE      CHG    CHG     CHG
 US crude                    92.96    -2.26  -2.4%    1.2%
 Brent crude                113.71    -1.89  -1.6%    2.3%
 Natural gas                 3.246   -0.033  -1.0%   -3.1%
 
 US gold                   1578.20     0.60   0.0%   -5.8%
 Gold                      1575.26    12.97   0.8%   -5.9%
 US Copper                  355.30    -5.50  -1.5%   -2.7%
 LME Copper                7861.00   -99.00  -1.2%   -0.9%
 Dollar                     81.369    0.300   0.4%    6.0%
                              
 
 US corn                    690.75    -9.75  -1.4%   -1.1%
 US soybeans               1487.75     5.00   0.3%    4.9%
 US wheat                   721.25   -17.25  -2.3%   -7.3%
 
 US Coffee                  141.75     0.75   0.5%   -1.4%
 US Cocoa                  2143.00    16.00   0.8%   -4.2%
 US Sugar                    18.12    -0.23  -1.3%   -7.1%
 
 US silver                  28.699    0.077   0.3%   -5.1%
 US platinum               1620.00   -27.10  -1.6%    5.3%
 US palladium               733.60    -2.80  -0.4%    4.3%
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